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8 May 2016

ETHICS SUSTAINABILITY AND
CORPORATE GOVERNANCE

VODACOM CASE STUDY:
CORPORATE GOVERNANCE

Individual Assignment
MBA Weekday

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INRODUCTION:
Corporate governance is a practice by which companies manage and control themselves to
ensure continued business sustainability as well as to remain accountable to their
stakeholders (Naidoo 2008)
...
As an essential part of this commitment, the Board
supports the highest standards of corporate governance and in so doing; the Board
recognises the need to conduct the enterprise in accordance with the principles as
contemplated in the Code of Corporate Practices and Conduct as set out in King II and
looking forward to King III
...

These principles are entrenched in the Group’s internal controls and policy procedures
governing corporate conduct
...
” [1]
At face value, Vodacom’s above statement appears to be a sterling example of legitimate
commitment to Corporate Governance compliance
...
Were the former CEO (Alan-Knott Craig Senior’s)
actions in fact consistent with the above statement? (In the interests of balanced analysis, it
is only fair to explore multiple events in Vodacom’s history)

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Picture: Alan Knott-Craig (Senior)
“Restraint of Trade” fee
Clause 2
...
4 of King II states that “Companies should provide full disclosure of director
remuneration on an individual basis, giving details of earning, share options, restraint
payments and all other benefits”
Clause 18
...
This is a measure of how good management is
at making necessary information available in a candid, accurate and timely manner – not
only the audit data but also general reports and press releases
...

In February 2010, Vodacom’s Corporate Governance practises came under the spotlight
...

From this deal, Alan Knott-Craig was reported to have received a two-year, R1 Million per
month fee from Vodacom in return for consulting services and to restrain him from working
in the technology industry [2]
Anonymous comments from Vodacom’s Directors (both past and present) included:
“Maybe (there was) no legal obligation to tell us, but it would be nice to disclose it to your
board” [3]
Vodacom published its “prelisting statement” in March 2009, which was meant to detail
major contracts and deals with “related parties”
...

The Institute of Directors (IOD) also raised concerns that the company had not disclosed
that it was paying former group CEO Alan Knott-Craig a monthly “restraint of trade” fee
...
“Shareholders would then have had the
opportunity to have a say about it, even though it would have been after the event
...
[5]
Charl Kocks, head of Ratings Afrika said: “Sound Governance would have meant that any
large sum paid to the former CEO should have been disclosed
...
1 of King III states that: “A director shall, in respect of an effective transaction,
disclose any conflict of interest
...


Nepotism is defined as favouritism granted to relatives or friends regardless of merit
...


Should Vodacom’s Directors, Shareholders, Employees and other Stakeholders have
tolerated the practice taking place at a large listed Company, which subscribes to the above
statement on corporate governance? Especially when this is practised by its CEO? (In 2010,
Vodacom was South Africa’s 16th largest listed company, with a market value of R79 Billion!)
...

Allegations of nepotism, corporate malpractice, and violations of corporate governance
came to light which had first been raised (by senior executives), against Alan Knott-Craig
Senior in 2008
...
(Vodafone and Telkom were Vodacom's majority shareholders in
2008)
...
Alan Knott-Craig Junior between 2003 and 2004, had been given millions of rands and
office space at the Vodacom headquarters, along with IT assistance when he launched
Look4Me through his company, Cellfind;

2
...
The agency
was owned and managed by Alan Knott-Craig Senior’s niece Anthea van Heerden (née
Knott-Craig) and nephew Ronald Knott-Craig;

3
...
Not only was Knott-Craig Junior the MD
of WBS, but Vodacom is alleged to have paid far more for its stake than it should have
...
Alan Knott-Craig Senior arranged for Vodacom to pay for an employee to be trained in
the US to become a magician
...
This law requires the
disclosure of governance lapses and risks in NYSE-listed entities, and their subsidiaries
...
" [9]
Knott-Craig's son, Alan junior, told the Sunday Times his father was "completely
exonerated" by the KPMG report
...
The Vodacom board decided to institute an investigation to either confirm the charges
or clear my father's name
...
" [10]
Nigeria
In March 2004, after months of due diligence, Vodacom concluded a Joint Venture deal with
Econet Wireless Nigeria (EWN)
...


Wisely Vodacom inserted a condition in the agreement, stating that it had the right to
withdraw at any time, if the provisions of the FCPA Act were not being adhered to
...


The deal raised concerns with Telkom’s US based shareholder, SBC communications
...


Vodacom’s entry into Nigeria was challenged by EWN’s minority Shareholder, Econet
Wireless Limited (EWL) headed up by Strive Masiyiwa
...
He therefore had a motive to sabotage the deal
...


The payment of “brokerage fees” ultimately led to the deals demise
...


Alan Knott-Craig found that although the agreement between Vodacom and EWN stipulated
that the brokerage fees were not to be paid until the completion of the due diligence and
the signing of the management agreement, they had been paid by the Nigerian operator
days before the management agreement was signed
...
(In this statement, Knott-Craig was making
inference to the advance fee fraud, commonly referred to as a 419 scam)

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“We had a clear understanding, but EWN chose to pay without telling us
...
We shall not be going back there for the foreseeable future”
“Corporate Governance cannot be compromised for profits” [13]
ANALYSIS AND COMMENT:

I believe that Alan Knott-Craig exemplified consistency with the statement, in terms of his
fiduciary duties towards the Company, Shareholders and other Stakeholders in his conduct
with the Nigerian deal
...
We are committed to running a clean business, always have been, and always
have done so” [14]
As in Naidoo’s definition earlier, Knott-Craig displayed effective leadership when
abandoning Nigeria
...

The decision was consistent with Friedman’s statement: “There is one and only one social
responsibility of business – to use its resources and engage in activities designed to increase
its profits so long as it stays within the rules of the game, which it to say it engages in open
and free competition without deception or fraud
...

His statement “Corporate governance cannot be compromised for profit” however rings of
irony
...
The numerous and large scale incidents of
nepotism should not have gone unpunished!
Again Vodacom and Knott-Craig were inconsistent with the statement when “restraint of
trade” (consulting) fees were not disclosed to all board members or shareholders
...
Vodacom should’ve disclosed Knott-Craig’s
payments, if not with the annual financial statements, then at least as part of the group’s
governance statements
...
However, the subsequent events illustrate that there is a lot still to be desired in
terms of their corporate governance compliance
...


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References:
1
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vodacom
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php
2
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techcentral
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za/vodacom-under-fire-over-corporategovernance/12871/
3
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timeslive
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za/business/article317729
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http://www
...
co
...
http://www
...
co
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Knott-Craig Agreement hidden from top brass, Sunday Times, 21 February 2010
7
...
citypress
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za/Business/News/Nepotism-is-a-festering-tumour20100130
8
...
timeslive
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za/news/article264336
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http://www
...
org/index
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http://www
...
co
...
http://www
...
com/news/en/issue-no-210/top-story/nigerias-veenetwork/en
12
...
www
...
com/vodacom
...
Second is Nothing, Alan Knott-Craig, 2009
15

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